Feature of Fiscal Policy of India

Feature of Fiscal Policy of India

The following are the main features of fiscal policy of India

1) Rationalization of Product Classification codes: A very welcome change brought about for administrative convenience is the adoption of a rationalized standard product code structure for indirect taxes. The change has resulted in reduced disputes and litigation about product classification.

2) Common Accounting Year of Income Tax: Taxation policy has adopted standard accounting year (April-March) for the purpose of income tax. The change is intended to reduce the malpractices and raise tax revenues.

3) Long-term Fiscal Policy:Since 1986 budget, the government of India has introduced long-term fiscal policy to provide greater certainties in its budgetary policies and to improve the over all environment of business.

4) Impact on Rural Employment: Generation of employment has been an important objective of fiscal policy. The Government of India has introduced new employment schemes like integrated Rural development program or national rural employment program.

5) Black money: Unaccounted money has been a constant feature of India’s economy. Fiscal measures have generally failed to reduce the creation of black money. Schemes like voluntary disclosure, bearer bonds or indira vikas patra have had marginal impact on the incidence and growth of black money.

6) Reliance on Indict taxes: The tax policy is increasingly becoming regressive in nature by large dependence on indirect taxes like excise duty or custom duty as compared to that on direct taxes like income taxes, corporation tax, capital gains tax, etc.

7) Inadequate Public Sector contribution: Contrary to repeated assertion by the goverment of India, public sector continues to be a drain on the meager resources of the government. Plan schemes of finance have expected sizable contribution from public sector, which has not meterialised in most cases.

8) Introduction of MODVAT: In 1986 the introduction of MODVAT has helped to reduce the cumulative impact of indirect taxes on manufactured products. Under MODVAT the manufacturer while charging full rate of excise duty on his output, gets credit for tax paid on inputs. This reduces the cascading effect of excise duty.

9) Inflationary Potential: With large budget deficits, indirect taxes, shortages, black money and rising money incomes, inflationary trend in economy has been remarkable. The fiscal policy instead of being a cure of inflation has become the cause of inflation.